Is India’s Freedom 251, a $4 Smartphone, Too Good to Be True?

A little-known Indian company has announced grand plans to sell millions of made-in-India smartphones for less than $4 a piece, despite the fact that it has only been in the smartphone business for five months and has yet to build a factory.

Ringing Bells Pvt. started taking orders for its Freedom 251 phone on Thursday for 251 rupees ($3.67) each, or less than the price of a McDonald’s Big Mac in the U.S. The company has promised to deliver the phones by June 30–after it builds two manufacturing plants.

Social media lit up with discussion about the device–which the company says will have a four-inch display, 3.2-megapixel camera and 8 gigabytes of storage–after ads for the phone with the tagline “dreams will come true,” appeared in newspapers. Ringing Bells said its phones will have apps that help farmers check soil conditions and fishermen get weather reports.

The company’s website crashed Thursday and it stopped accepting orders for the device as it worked to upgrade its servers, the website said.

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At a launch event in a public park Wednesday, thousands turned out to see company President Ashok Chadha unveil a poster-sized image of a phone under a shower of pyrotechnics and confetti. It was an impressive turnout considering only days earlier almost no one had even heard of him, his company or its phone.

Phones given to journalists to try looked as if the branding from another manufacturer had been covered up with white-out on the phone’s front. Indian flag stickers covered the rear. The phones used an Android operating system.

Mr. Chadha said the phone he was sharing was a “beta device.”

Ringing Bells said it would spend 5 billion rupees, or about $73 million, to build the factories. Mr. Chadha said the money will come from the family of Mohit Goel, one of the founders and directors of the company. Mr. Goel’s family owns a farming business, Mr. Chadha said. Attempts to reach Mr. Goel were unsuccessful.

Analysts said they couldn’t see how Ringing Bells could ever make money selling phones for $4.

If Ringing Bells follows through with its plans, the difficulties of setting up manufacturing operations in India could mean it runs into delays that could cause it to miss its June deadline, a spokeswoman for another Indian phone manufacturer said. She said setting up a new factory often takes up to a year.

The company aims produce hundreds of thousands of phones a month and take around 30% of the smartphone market within a year, Mr. Chadha said. Over 100 million smartphones were shipped by manufacturers to retailers in India last year, according to International Data Corp., a research company.

Despite the low price, Mr. Chadha said the company expects to make money on the phones. He said that making the phone using components imported from China would cost about 2,500 rupees per phone. India doesn’t make many components used in phones and other phone sellers in the country import their phones and components from elsewhere.

But Mr. Chadha said he expected to reduce costs through through “economies of scale,” tax breaks for local manufacturing, and other cost-cutting measures. “We are technocrats and have some understanding of international economics,” he said.

Ringing Bells says it will offer a smartphone with a 4-inch display, 3.2 megapixel camera and 8 gigabytes of memory for less than $4. The $33 smartphones powered by Mozilla Corp.’s Firefox operating system have a 3.5 inch display, 2 megapixel camera and 256 megabytes of storage.